HIRERIGHT HOLDINGS CORPORATION You should read the following discussion of the financial condition and results of operations together with our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements as disclosed in the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , filed with theSecurities and Exchange Commission (the "SEC") onMarch 21, 2022 (the "Annual Report"). The statements in the following discussion and analysis regarding expectations about our future performance, liquidity and capital resources and any other non-historical statements in this discussion and analysis are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those described immediately below under "Cautionary Note Regarding Forward-Looking Statements."
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q and related statements by the Company contain forward-looking statements within the meaning of the federal securities laws. You can often identify forward-looking statements by the fact that they do not relate strictly to historical or current facts, or by their use of words such as "anticipate," "estimate," "expect," "project," "forecast," "plan," "intend," "believe," "seek," "could," "targets," "potential," "may," "will," "should," "can have," "likely," "continue," and other terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. Forward-looking statements may include, but are not limited to, statements concerning our anticipated financial performance, including, without limitation, revenue, profitability, net income (loss), adjusted EBITDA, earnings per share, and cash flow; strategic objectives; investments in our business, including development of our technology and introduction of new offerings; sales growth and customer relationships; our competitive differentiation; our market share and leadership position in the industry; market conditions, trends, and opportunities; future operational performance; pending or threatened claims or regulatory proceedings; and factors that could affect these and other aspects of our business. Forward-looking statements are not guarantees. They reflect our current expectations and projections with respect to future events and are based on assumptions and estimates and subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from expectations or results projected or implied by forward-looking statements. Factors that could affect the outcome of the forward-looking statements include, among other things, the impacts, direct and indirect, of the COVID19 pandemic on our business, our personnel and vendors, and the overall economy; our ability to maintain our professional reputation and brand name; our vulnerability to adverse economic conditions; the aggressive competition we face; our heavy reliance on information management systems, vendors, and information sources that may not perform as we expect; the significant risk of liability we face in the services we perform; the fact that data security, data privacy and data protection laws and other evolving regulations and cross-border data transfer restrictions may limit the use of our services and adversely affect our business; social, political, regulatory and legal risks in markets where we operate; the impact of foreign currency exchange rate fluctuations; unfavorable tax law changes and tax authority rulings; any impairment of our goodwill, other intangible assets and other long-lived assets; our ability to execute and integrate future acquisitions; our ability to access additional credit or other sources of financing; and the increased cybersecurity requirements, vulnerabilities, threats and more sophisticated and targeted cyber-related attacks that could pose a risk to our systems, networks, solutions, services and data. For more information on the business risks we face and factors that could affect the outcome of forward-looking statements, refer to our Annual Report on Form 10-K filed with theSEC onMarch 21, 2022 , in particular the sections of that document entitled "Risk Factors," "Forward-Looking Statements," and "Management's Discussion and Analysis of Financial Condition and Results of Operations," and other filings we make from time to time with theSEC . We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Investors should read this Quarterly Report on Form 10-Q and the documents that we reference in this report and have filed or will file with theSEC completely and with the understanding that our actual future results may be 24 --------------------------------------------------------------------------------
materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
Business Overview
HireRight is a leading global provider of technology-driven workforce risk management and compliance solutions. We provide comprehensive background screening, verification, identification, monitoring, and drug and health screening services for more than 40,000 customers across the globe. We offer our services via a unified global software and data platform that tightly integrates into our customers' human capital management ("HCM") systems enabling highly effective and efficient workflows for workforce hiring, onboarding, and monitoring. In 2021, we screened over 29 million job applicants, employees and contractors for our customers and processed over 110 million screens.HireRight GIS Group Holdings LLC ("HGGH"), was formed inJuly 2018 in connection with the combination of two groups of companies: theHireRight Group and the General Information Services ("GIS") Group, each of which includes a number of wholly-owned subsidiaries that conduct the Company's business inthe United States , as well as other countries. SinceJuly 2018 , the combined group of companies and their subsidiaries have operated as a unified operating company providing screening and compliance services, predominantly under the HireRight brand. OnOctober 15, 2021 , HGGH converted into aDelaware corporation and changed its name toHireRight Holdings Corporation ("HireRight" or the "Company"). In conjunction with the conversion, all of HGGH's outstanding equity interests were converted into shares of common stock ofHireRight Holdings Corporation . The foregoing conversion and related transactions are referred to herein as the "Corporate Conversion". The Corporate Conversion did not affect the assets and liabilities of HGGH, which became the assets and liabilities ofHireRight Holdings Corporation .
Factors Affecting Our Results of Operations
Economic Conditions
Our business is impacted by the overall economic environment and total employment and hiring. The rapidly changing dynamics of the global workforce are creating increased complexity and regulatory scrutiny for employers, bolstering the importance of the solutions we deliver. We have recently benefited from key demand drivers, which increase the need for more flexible, comprehensive screening and hiring solutions in the current environment. Our customers are a diverse set of organizations, from large-scale multinational businesses to small and medium businesses across a broad range of industries, including transportation, healthcare, technology, financial services, business and consumer services, manufacturing, education, retail and not-for-profit. Hiring requirements and regulatory considerations can vary significantly across the different types of customers, geographies and industry sectors we serve, creating demand for the extensive institutional knowledge we have developed from our decades of experience. Multiple shifts in social norms and labor force dynamics are currently underway, including increasingly mobile and globalized workforces and growing demand for remote working arrangements. The growth of the gig economy has been a major force driving increasing contributions from temporary, flexible and on-demand labor. Employment dynamics in the gig economy result in high rates of workforce churn and a distinctive, loosely associated labor force which generates new and increased demands for background screening and compliance services.
Background screening is also gaining broader adoption outside the
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--------------------------------------------------------------------------------Recent Developments
Effective
Key Components of Our Results from Operations
Revenues
The Company generates revenues from background screening and compliance services delivered in online reports. Our customers place orders for our services and reports either individually or through batch ordering. Each report is accounted for as a single order which is then typically consolidated and billed to our customers on a monthly basis. Approximately 29% of revenues for both the three months endedMarch 31, 2022 and 2021 were generated from the Company's top 50 customers, which consist of largeU.S. and multinational companies across diversified industries such as transportation, healthcare, technology, financial services, business and consumer services, manufacturing, education, retail and not-for-profit. None of the Company's customers individually accounted for greater than 3% and 4% of revenue during the three months endedMarch 31, 2022 and 2021, respectively. Technology, healthcare, and financial services customers represent the largest contributors to revenue. Revenues for the three months endedMarch 31, 2022 , from these customers increased 39% over the prior year period. Expenses Cost of services (excluding depreciation and amortization) consists of data acquisition costs, medical laboratory and collection fees, direct labor from operations, customer service and customer onboarding costs, as well as other direct costs incurred to fulfill our services. Approximately 80% of cost of services is variable in nature. Selling, general and administrative expenses consist of personnel-related costs for sales, technology, administrative and corporate management employees in addition to costs for third-party technology, professional and consulting services, advertising and facilities expenses. Selling, general and administrative expenses also include amortization of capitalized implementation costs for cloud-based software. Depreciation and amortization expenses consist of depreciation of property and equipment, as well as amortization of purchased and developed software and other intangible assets, principally resulting from the acquisition of GIS in 2018. Other expenses consist of interest expense relating to our credit facilities and interest rate swap agreements, gains and losses on asset disposal, and foreign exchange gains and losses. The majority of our receivables and payables are denominated inU.S. dollars, however, we also earn revenue, pay expenses, own assets and incur liabilities in countries using currencies other than theU.S. dollar, including among others, the British pound, the Australian dollar, the Canadian dollar, the Euro, the Polish zloty, theSingapore dollar, the Mexican peso, Japanese yen, and the Indian rupee. Therefore, increases or decreases in the value of theU.S. dollar against other currencies could result in realized and unrealized gains and losses in foreign exchange. However, to the extent we earn revenue in currencies other than theU.S. dollar, we generally pay a corresponding amount of expenses in such currency and therefore the cumulative impact of these foreign exchange fluctuations is not deemed material to our financial performance.
Income tax expense consists of international,
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--------------------------------------------------------------------------------Results of Operations
Comparison of Results of Operations for the three months ended
The following table presents operating results for the three months endedMarch 31, 2022 and 2021. Three Months Ended March 31, 2022 2021 (in thousands) (% of revenues) (in thousands) (% of revenues) Revenues$ 198,711 100.0 %$ 149,557 100.0 % Expenses Cost of services (exclusive of depreciation and amortization below) 112,403 56.6 % 86,187 57.6 % Selling, general and administrative 48,267 24.3 % 39,394 26.3 % Depreciation and amortization 18,061 9.1 % 18,243 12.2 % Total expenses 178,731 89.9 % 143,824 96.2 % Operating income 19,980 10.1 % 5,733 3.8 % Other expenses Interest expense 7,557 3.8 % 17,949 12.0 % Other expense (income), net 41 - % (809) (0.5) % Total other expenses, net 7,598 3.8 % 17,140 11.5 % Income (loss) before income taxes 12,382 6.2 % (11,407) (7.6) % Income tax expense 818 0.4 % 572 0.4 % Net income (loss)$ 11,564 5.8 %$ (11,979) (8.0) % Revenues Total revenues increased$49.2 million , or 32.9%, to$198.7 million , for the three months endedMarch 31, 2022 , compared to the three months endedMarch 31, 2021 , primarily driven by higher order volume and higher average order values associated with existing customers and increasing sales to new customers. Revenues from international andUnited States regions increased by$4.7 million , or 43.5%, and by$44.5 million , or 32.0%, respectively, during the three months endedMarch 31, 2022 , compared to the three months endedMarch 31, 2021 .
Cost of Services (exclusive of depreciation and amortization below)
Cost of services increased$26.2 million , or 30.4%, to$112.4 million , for the three months endedMarch 31, 2022 , compared to the three months endedMarch 31, 2021 , primarily due to higher volumes. Cost of services as a percent of revenue decreased to 56.6% for the three months endedMarch 31, 2022 , compared to 57.6% for the three months endedMarch 31, 2021 .
Selling, General and Administrative
Selling, general and administrative expenses ("SG&A") increased $8.9 million , or
22.5%, to $48.3 million , for the three months ended March 31, 2022 , compared to
the three months ended March 31, 2021 . SG&A as a percent of revenue for the
three months ended March 31, 2022 declined to 24.3% from 26.3% for the three
months ended March 31, 2021 . The increase in SG&A is primarily due to increases
in personnel costs of $6.8 million , and increased public company costs of $3.0
million . Increased public company costs included audit, accounting and
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legal fees as well as insurance premiums. Of the
Interest Expense
Interest expense decreased$10.4 million , or 57.9%, to$7.6 million , for the three months endedMarch 31, 2022 , compared to the three months endedMarch 31, 2021 . The decrease was primarily due to lower outstanding debt balances, due to reduction in outstanding indebtedness under our credit facilities as a result of voluntary principal prepayments using IPO proceeds during the fourth quarter of 2021 and scheduled principal repayments. Additionally, there was a$2.2 million reclassification of unrealized gains related to the terminated Interest Rate Swap Agreements which reduced interest expense during the three months endedMarch 31, 2022 . Income Tax Expense Income tax expense increased$0.2 million , or 43.0%, for the three months endedMarch 31, 2022 , compared to the three months endedMarch 31, 2021 . The effective tax rate for the three months endedMarch 31, 2022 , was 6.6% compared to 5.0% for the three months endedMarch 31, 2021 . The change in the effective tax rate was primarily driven by higher state tax expense due to the increase in pre-tax income. The effective tax rate for the three months endedMarch 31, 2022 , differs from the Federal statutory rate of 21% primarily due to valuation allowances, state taxes, andU.S. tax on foreign operations. The effective tax rate for the three months endedMarch 31, 2021 , differs from the Federal statutory rate of 21% primarily due to valuation allowances and state taxes.
Non-GAAP Financial Measures
We believe that the presentation of our non-GAAP financial measures provides information useful to investors in assessing our financial condition and results of operations. These measures should not be considered an alternative to net income (loss) or any other measure of financial performance or liquidity presented in accordance with accounting principles generally accepted inthe United States ("GAAP"). These measures have important limitations as analytical tools because they exclude some but not all items that affect the most directly comparable GAAP measures. Additionally, because they may be defined differently by other companies in our industry, our definitions may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.
Adjusted EBITDA
Adjusted EBITDA represents, as applicable for the period, net income (loss) before provision for income taxes, interest expense and depreciation and amortization expense, stock-based compensation, realized and unrealized gain (loss) on foreign exchange, merger integration expenses, amortization of cloud-based software implementation costs, legal settlement costs deemed by management to be outside the normal course of business, and other items management believes are not representative of the Company's core operations. Adjusted EBITDA is a supplemental financial measure that management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess our:
•Operating performance as compared to other publicly traded companies without regard to capital structure or historical cost basis;
•Ability to generate cash flow;
•Ability to incur and service debt and fund capital expenditures; and
•The viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.
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The following table reconciles our non-GAAP financial measure of Adjusted EBITDA
to net income (loss), our most directly comparable financial measures calculated
and presented in accordance with GAAP, for the periods presented.
Three Months Ended
March 31,
2022 2021
(in thousands)
Net income (loss) $ 11,564 $ (11,979)
Income tax expense 818 572
Interest expense 7,557 17,949
Depreciation and amortization 18,061 18,243
EBITDA 38,000 24,785
Stock-based compensation 2,794 823
Realized and unrealized loss on foreign exchange (79) (809)
Merger integration expenses (1) 205 812
Amortization of cloud-based software implementation costs (2) 151 -
Other items (3) 655 1,246
Adjusted EBITDA $ 41,726 $ 26,857 (1)Merger integration expenses consist primarily of information technology
("IT") related costs including personnel expenses, professional and service fees
associated with the integration of customers and operations of GIS, which
commenced in
(2)Amortization of cloud-based software implementation costs consists of expense recognized in selling, general and administrative expenses for capitalized implementation costs for cloud-based IT systems. This expense is not included in depreciation and amortization above. (3)Other items include (i) costs of$0.9 million associated with the implementation of a company-wide enterprise resource planning ("ERP") system during the three months endedMarch 31, 2022 and (ii)$0.3 million related to loss on disposal of assets and exit costs associated with one of our short-term leased facilities during the three months endedMarch 31, 2022 , partially offset by a reduction in previously accrued legal settlement expense of$0.6 million due to a more favorable outcome than originally anticipated in a claim outside the ordinary course of business. Other items for the three months endedMarch 31, 2021 are related to the preparation of the Company's initial public offering during 2021.
Adjusted Net Income and Adjusted Diluted Earnings Per Share
In addition to Adjusted EBITDA, management believes that Adjusted Net Income is
a strong indicator of our overall operating performance and is useful to our
management and investors as a measure of comparative operating performance from
period to period. We define Adjusted Net Income as net income (loss) adjusted
for amortization of acquired intangible assets, stock-based compensation,
realized and unrealized gain (loss) on foreign exchange, merger integration
expenses, amortization of cloud-based software implementation costs, legal
settlement costs deemed by management to be outside the normal course of
business, and other items, to which we apply an adjusted effective tax rate. See
the footnotes to the table below for a description of certain of these
adjustments. We define Adjusted Diluted Earnings Per Share as Adjusted Net
Income divided by adjusted weighted average number of shares outstanding
(diluted) for the applicable period. We believe Adjusted Diluted Earnings Per
Share is useful to investors and analysts because it enables them to better
evaluate per share operating performance across reporting periods and to compare
our performance to that of our peer companies.
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The following table reconciles our non-GAAP financial measure of Adjusted Net
Income to net income (loss), our most directly comparable financial measure
calculated and presented in accordance with GAAP, for the periods presented:
Three Months Ended
March 31,
2022 2021
(in thousands)
Net income (loss) $ 11,564 $ (11,979)
Income tax expense 818 572
Income (loss) before income taxes 12,382 (11,407)
Amortization of acquired intangible assets 15,505 15,647
Interest expense swap adjustments (1) (2,181) -
Interest expense discounts (2) 821 1,035
Stock-based compensation 2,794 823
Realized and unrealized loss on foreign exchange (79) (809)
Merger integration expenses (3) 205 812
Amortization of cloud-based software implementation costs (4) 151 -
Other items (5) 655 1,246
Adjusted income before income taxes 30,253 7,347
Adjusted income taxes (6) 439 301
Adjusted Net Income $ 29,814 $ 7,046 The following table sets forth the calculation of Adjusted Diluted Earnings Per Share for the periods presented:
Three Months Ended
March 31,
2022 2021
Diluted net income (loss) per share $ 0.15 $ (0.21)
Income tax expense 0.01 0.01
Amortization of acquired intangible assets 0.19 0.28
Interest expense swap adjustments (1) (0.03) -
Interest expense discounts (2) 0.01 0.02
Stock-based compensation 0.04 0.01
Realized and unrealized loss on foreign exchange - (0.01)
Merger integration expenses (3) - 0.01
Amortization of cloud-based software implementation costs (4) - -
Other items (5) 0.01 0.02
Adjusted income taxes (6) (0.01) (0.01)
Adjusted Diluted Earnings Per Share $ 0.37 $ 0.12
Weighted average number of shares outstanding - diluted 79,392,937 57,168,291
(1)Interest expense swap adjustments consist of amortization of unrealized gains
on the terminated Interest Rate Swap Agreements, which will be recognized
through
(2)Interest expense discounts consist of amortization of original issue discount and debt issuance costs.
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(3)Merger integration expenses consist primarily of information technology
("IT") related costs including personnel expenses, professional and service fees
associated with the integration of customers and operations of GIS, which
commenced in
(4)Amortization of cloud-based software implementation costs consists of expense recognized in selling, general and administrative expenses for capitalized implementation costs for cloud-based IT systems. This expense is not included in depreciation and amortization above. (5)Other items include (i) costs of$0.9 million associated with the implementation of a company-wide ERP system during the three months endedMarch 31, 2022 and (ii)$0.3 million related to loss on disposal of assets and exit costs associated with one of our short-term leased facilities during the three months endedMarch 31, 2022 , partially offset by a reduction in previously accrued legal settlement expense of$0.6 million due to a more favorable outcome than originally anticipated in a claim outside the ordinary course of business. Other items for the three months endedMarch 31, 2021 are related to the preparation of the Company's initial public offering during 2021.
(6)An adjusted effective income tax rate has been determined for each period presented by applying the statutory income tax rate and the provision for deferred income taxes to the pre-tax adjustments, which was used to compute Adjusted Net Income for the periods presented.
Liquidity and Capital Resources
General
Our primary sources of liquidity and capital resources are cash generated from
our operating activities, cash on hand, and borrowings under our long-term debt
arrangements. Income taxes have historically not been a significant use of funds
but after the benefits of our net operating loss ("NOL") carryforwards are fully
recognized, could become a material use of funds, depending on our future
profitability and future tax rate. Additionally, as a result of the income tax
receivable agreement (the "TRA") we entered into in connection with the IPO, we
will be required to pay certain pre-IPO equityholders or their transferees 85%
of the benefits, if any, that the Company and its subsidiaries realize, or are
deemed to realize in income tax savings due to our utilization of the NOLs, for
which the Company recognized an estimated total liability of $210.6 million .
Based on our current taxable income estimates, we expect to repay the majority
of this obligation by the end of 2030. These payments will result in cash
outflows of amounts we would otherwise have retained in the form of tax savings
from the application of the NOLs.
Unrestricted cash and cash equivalents as of March 31, 2022 was $87.6 million .
As of March 31, 2022 , cash held in foreign jurisdictions was approximately $13.4
million and is primarily related to international operations.
Restricted cash as of March 31, 2022 consists of $1.1 million held in escrow for
the benefit of former investors in a subsidiary of the Company pursuant to the
terms of its divestiture of a former affiliate in April 2018 .
The Company did not have an outstanding balance under the Revolving Credit
Facility and
As ofMarch 31, 2022 , the Company had purchase obligations of approximately$60.1 million with various parties, of which approximately$50.7 million is expected to be paid within one year. Our obligations as ofMarch 31, 2022 , have increased from$21.7 million as ofDecember 31, 2021 , due to the extension of a service agreement with one of the Company's current vendors. These purchase commitments are associated with agreements that are enforceable and legally binding. They are primarily commitments to purchase data and other screening services in the ordinary course of business with varying expiration terms through 2023. In addition to our regular investment in capital expenditures, we plan to invest approximately$45 to$50 million in a capital expenditure program through the end of fiscal year 2024 to continue to enhance our operating systems and technologies to improve operational efficiency. We expect that cash flow from operations and current cash balances, together with available borrowings under the Revolving Credit Facility, will be sufficient to meet operating requirements as well as the obligations under the TRA through the next twelve months. Although we 31 -------------------------------------------------------------------------------- believe we have adequate sources of liquidity over the long term, cash available from operations could be affected by any general economic downturn or any decline or adverse changes in our business such as a loss of customers, market and or competitive pressures, unanticipated liabilities, or other significant changes in business environment. Additional future financing may be necessary to fund our operations, and there can be no assurance that, if needed, we will be able to secure additional debt or equity financing on terms acceptable to us or at all. Debt The Company currently has two long-term debt arrangements as described below. Total principal outstanding on our debt was$705.8 million as ofMarch 31, 2022 and$707.9 million as ofDecember 31, 2021 . Collateral includes all outstanding equity interests in whatever form of the borrower and each restricted subsidiary that is directly owned by any credit party. The First Lien Credit Agreement includes a financial maintenance covenant for the benefit of the revolving lenders thereunder, which requires us to maintain a maximum first lien leverage ratio as of the last day of any fiscal quarter on which greater than 35% of the revolving commitments are drawn (excluding for this purpose up to$15.0 million of undrawn letters of credit). The Company was in compliance with the covenants under the First Lien Term Credit Agreement for the three months endedMarch 31, 2022 .
At
•a first lien senior secured term loan facility, bearing interest payable
monthly at a London Interbank Offered Rate ("LIBOR") variable rate (0.21% at
March 31, 2022 ) + 3.75%, maturing on July 12, 2025 (the "First Lien Term Loan
Facility").
•a first lien senior secured revolving credit facility, in an aggregate
principal amount of up to $100.0 million , including a $40.0 million letter of
credit sub-facility, bearing interest monthly at a LIBOR variable rate (0.21% at
March 31, 2022 ) + 3.5% (subject to adjustment pursuant to a leverage-based
pricing grid) and maturing on July 12, 2023 (the "Revolving Credit Facility").
As of March 31, 2022 , the Revolving Credit Facility accrued interest at
one-month LIBOR plus 2.5% based on the current leverage-based pricing grid. The
Company had $98.7 million in available borrowing capacity under the Revolving
Credit Facility, after utilizing $1.3 million for letters of credit as of
March 31, 2022 .
Cash Flow Analysis
Comparison of Cash Flows for the three months ended
The following table sets forth a summary of our condensed consolidated cash
flows for the three months ended
Three Months Ended March 31,
2022 2021
(in thousands)
Net cash (used in) provided by operating activities $ (2,015) $ 3,192
Net cash used in investing activities (4,529) (2,675)
Net cash used in financing activities (20,533) (2,088)
Net decrease in cash, cash equivalents and restricted cash
Operating Activities Cash (used in) provided by operating activities reflects net income (loss) adjusted for certain non-cash items and changes in operating assets and liabilities. Cash used in operating activities was$2.0 million for the three months endedMarch 31, 2022 compared to cash provided of$3.2 million for the three months endedMarch 31, 2021 . The 32 -------------------------------------------------------------------------------- decrease in cash flows provided by operating activities was due primarily to higher use of cash for working capital as well as our expenditures related to our platform modernization and automation efforts, partly offset by net income for the current quarter compared to a net loss for the prior year period.
Investing Activities
Cash used in investing activities was approximately$4.5 million during the three months endedMarch 31, 2022 , compared to approximately$2.7 million during the three months endedMarch 31, 2021 . The increase in cash used in investing activities was due primarily to increases in purchases of property and equipment and capitalized software development costs compared to the prior period.
Financing Activities
Cash used in financing activities was approximately$20.5 million for the three months endedMarch 31, 2022 compared to cash used in financing activities of approximately$2.1 million during the three months endedMarch 31, 2021 . The increase in cash used in financing activities was due primarily to the$18.4 million payment related to the termination of the Interest Rate Swap Agreements, as defined below; net repayments on our debt facilities was$2.1 million in the three months endedMarch 31, 2022 and in the three months endedMarch 31, 2021 .
Interest Rate Swaps
The Company had entered into interest rate swap agreements with a total notional amount of$700.0 million with an effective date ofDecember 31, 2018 (the "Interest Rate Swap Agreements"). The Interest Rate Swap Agreements were designed to provide predictability against changes in the interest rates on the Company's debt, as the Interest Rate Swap Agreements converted a portion of the variable interest rate on the Company's debt to a fixed rate. The Interest Rate Swap Agreements were originally scheduled to expire onDecember 31, 2023 . OnSeptember 26, 2019 , the Company modified the terms of the Interest Rate Swap Agreements with the then existing counterparties to change the LIBOR reference period to one month. The notional amount and maturities of the Interest Rate Swap Agreements remained unchanged. The Company elected hedge accounting treatment at that time. To ensure the effectiveness of the Interest Rate Swap Agreements, the Company elected the one-month LIBOR rate option for its variable rate interest payments on term balances equal to or in excess of the applicable notional amount of the Interest Rate Swap Agreement as of each reset date. The reset dates and other critical terms on the term loans perfectly matched with the interest rate cap reset dates and other critical terms during the three months endedMarch 31, 2022 and 2021. AtMarch 31, 2022 andDecember 31, 2021 , the effective portion of the Interest Rate Swap Agreements was included on the condensed consolidated balance sheets in accumulated other comprehensive income. EffectiveFebruary 18, 2022 , the Company terminated the Interest Rate Swap Agreements. In connection with the termination of the Interest Rate Swap Agreements, the Company made a payment of$18.4 million to the swap counterparties. Following these terminations,$21.5 million of unrealized gains related to the terminated Interest Rate Swap Agreements included in accumulated other comprehensive income will be reclassified to earnings as reductions to interest expense throughDecember 31, 2023 .
Off-Balance Sheet Arrangements
As of
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